During World War II, Isabel Green is left to care for her three children, Norman, Megsie, and Vincent, when her husband, Rory, leaves to fight in the war. Isabel has great difficulty controlling the children, and has to juggle raising them with her job at a local store, run by Mrs Docherty. To make matters worse, Rory's brother, Phil, is trying to pressure her into selling Rory's half of the farm as Phil has gambled it away in a casino and he has two hit-women, Miss Topsey and Miss Turvey threatening to remove his kidneys if he doesn't give them the deeds to the farm. Plus, Isabel's nephew and neice, Cyril and Celia, are being sent from their home in the city to stay with Isabel and the children.
Cyril and Celia arrive at the farm a day early, and quickly get on their cousins bad sides. When Isabel arrives home, the children are fighting. Nanny McPhee eventually shows up, claiming to be an "army nanny" who has been deployed to help Isabel. Using her magic, Nanny McPhee quickly brings the children under control.
During the night, Phil digs a hole that enables the farms prized piglets to escape. In the morning, the children put their differences aside and recapture the piglets, after some magical manipulation from Nanny McPhee, who made the pigs climb trees and do synchronized swimming in order to teach the children one of her five lessons. During a picnic the next day, Phil hands Isabel a telegram, telling her that Rory has been killed in action. However, Norman is convinced his father is alive, so he heads off to London with Cyril and Nanny McPhee to talk to Cyril's father, who is very high up in the War Office. Norman leaves a note for Megsie, telling her to try and keep their mother from selling the farm.
While speaking with Cyril's father, Lord Gray, Norman discovers that Cyril and Celia were sent to stay at the farm, not because of bombs, but because their parents are getting divorced. Eventually, Lord Gray reveals that Rory is missing in action, and there is no record of a telegram being sent to Isabel. Realizing that the telegram Phil had given Isabel was forged, Norman, Cyril, and Nanny McPhee start to head back to the farm.
Meanwhile, Phil is trying to get Isabel to sell the farm again, but Megsie and Celia are trying to stall the process by stealing the pens. When all seems lost, an enemy pilot accidently drops a large bomb in the field of barley which causes the ground to shake, and the fountain pen Isabel is using spills ink, ruining her signature. Phil becomes hysterical, convinced the bomb is a sign that Miss Topsey and Miss Turvey are coming for him. When Norman and Cyril return and Norman reveals that Phil forged the telegram, Phil admits his wrongdoing.
Leaving Phil handcuffed in the farmhouse, Isabel and the children watch the warden, Mr Docherty, attempt to defuse the bomb, only for him to faint. The children take matters into their own hands and Megsie first snips a blue wire, then a red one. Unfortunately, the bomb begins to shake violently and Cyril reads that there is a green wire hidden by explosive putty and that red lights will begin the countdown to explosion. Mr Edelweiss, Nanny McPhee's putty-eating jackdaw, flies to the rescue and hacks away enough putty to enable Megsie to snip the green wire and the bomb shuts down.
Meanwhile, Miss Topsey and Miss Turvey arrive at the farm house, telling Phil they've decided not to remove his kidneys, but they've decided to stuff him instead. In the meantime, Mr Edelweiss has blown up after eating the putty, but Nanny McPhee bangs her stick and Edelweiss lets out an almighty burp which causes a wind which flattens the barley and blows Miss Topsey and Miss Turvey out of the house.
When it comes time for Nanny McPhee to leave, she thanks Mrs Docherty, whom she addresses as "Aggy", for having her to stay. Seeing her leave, Isabel and the children take off after her. Mrs Docherty then takes out her old rattle, revealing she is in fact Baby Aggy from the first film. Isabel and the children continue to run after Nanny McPhee, only to be met by a returning Rory, whose left arm is in a sling. Nanny McPhee turns back to watch the happy reunion, also showing that her last imperfection, her tooth, has vanished and she is now a beautiful woman. Mr Edelweiss hops onto her shoulder, and she continues to walk down the hill as the film comes to an end.
Trivia
There was a scene where Nanny McPhee explains to the children how Mr Edelweiss got his name, but her explanation doesn't make much sense. She basically explains the edelweiss is a small white flower, and Mr. Edelweiss is a large black bird. Norman, Megsie and Celia look at her confused, and Nanny McPhee sighs and says "It was funny at the time". This scene did not make the final cut, but is featured as a bonus feature on the DVD.
Mr Edelweiss has only one line in the whole film; he says "putty" during the bomb defusing scene.
At the end of the film Nanny Mcphee can be seen talking to Mrs Docherty, addressing her as 'Agatha'. That being said, this makes Aggy the only character, other than Nanny McPhee, to appear in both movies, albeit being portrayed by different actors (to support the fact that in this film, she is now an elderly lady).
Nanny McPhee's five lessons
Much like in the first film, Nanny McPhee has to teach the children five lessons, and with each lesson learned, one of her imperfections disappears and she changes from ugly to beautiful during the course of the film with her snaggletooth being the last to go much like in the first film. Her lessons, and the changes that happen to her are:
Lesson One: To stop fighting - The wart under her nose disappears
Lesson Two: To share - The hairy wart on her chin disappears
Lesson Three: To work together - Her unibrow disappears
Lesson Four: To be brave - Her hair changes from grey to curly and brown
Lesson Five: To have faith - Her tooth disappears and she is now beautiful
Nanny McPhee's medals
Nanny McPhee, who claims to be an army nanny in this film, wears medals on the left side of her chest. She has seven in total. When she leaves at the end of the film, she awards Isabel and the children with each one of the medals except for the basket-work medal, which disappears. She awards the medals to the following:
Courage - to Cyril Gray
Kindness - to Celia Gray
Resolve - to Megsie Green
Imagination - to Norman Green
Enthusiasm - to Vincent Green
Basket-work - Never awarded
Leaps of Faith - to Isabel Green
Quotes
Miss Topsey and Miss Turvey: (repeated line) Yoo-hoo!
Miss Topsey: (To Phil) "We will have to scoop you out while you're still ... well ...".
Miss Turvey: "Alive".
Phil: "NOOOOOOO!"
Mrs Docherty: "Nanny McPhee doesn't like goodbyes. I remember when I was little".